Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

50-Day Moving Average

What it is:

The 50-day moving average is a popular technical indicator which investors use to analyze price trends. It is simply a security's average closing price over the last 50 days.

How it works (Example):

You can calculate the 50-day moving average by taking the average of a security's closing price over the last 50 days [(Day 1 + Day 2 + Day 3 + ... + Day 49 + Day 50)/50].

On the surface, it seems as though the higher the 50-day moving average goes, the more bullish the market is (and the lower it goes, the more bearish). In practice, however, the reverse is true. Extremely high readings are a warning that the market may soon reverse to the downside. High readings reveal that traders are far too optimistic. When this occurs, fresh new buyers are often few and far between. Meanwhile, very low readings signify the reverse; the bears are in the ascendancy and a bottom is near. The shorter the moving average, the sooner you'll see a change in the market.

Why it Matters:

The 50-day moving average is perceived to be the dividing line between a stock that is technically healthy and one that is not. Furthermore, the percentage of stocks above their 50-day moving average helps determine the overall health of the market.

Many market traders also use moving averages to determine profitable entry and exit points into specific securities.

Related Terms View All
  • Taking the Street
    Let's say John Doe has a Gordon Gekko complex and wants to make some money by...
  • Value Averaging
    Let's assume John Doe has $5,000 in his new-car account. He wants that to grow to $10,000...
  • Junior Capital Pool (JCP)
    Let's say Company XYZ has a new design for widgets. It has not produced anything beyond a...
  • Enrolled Agent (EA)
    To become an EA, a person has to pass a three-part comprehensive IRS test of individual...
  • Qualified Distribution
    A qualified distribution must meet two main requirements. First, it must occur at least...